Sonos reaches inflection point demonstrating the power and profitability of its business model
SANTA BARBARA, Calif.–(BUSINESS WIRE)–Sonos, Inc. (Nasdaq: SONO) today reported record fourth quarter and fiscal 2020 results.
Fourth Quarter 2020 Financial Highlights (unaudited)
- GAAP net income increased to $18.4 million from ($29.6) million last year; non-GAAP net income excluding stock-based compensation, restructuring and legal and transaction related fees increased to $40.7 million from ($16.6) million last year
- GAAP diluted earnings per share (EPS) increased to $0.15 from ($0.28) last year; non-GAAP diluted earnings per share (EPS) excluding stock-based compensation, restructuring, and legal and transaction related fees increased to $0.33 from ($0.15) last year
- Adjusted EBITDA increased to $46.4 million from ($2.8) million last year; excluding the effect of tariffs, adjusted EBITDA increased to $48.9 million
- Adjusted EBITDA margin increased to 13.7% from (0.9%) last year; excluding the effect of tariffs, adjusted EBITDA margin increased to 14.4%
- Gross margin increased 530 basis points to 47.5%; excluding the effect of tariffs, gross margin increased 560 basis points to 48.3%
- Revenue increased 16% year-over-year to $339.8 million; excluding the impact of the 14th week, revenue increased approximately 7% year-over-year
- Direct-to-consumer revenue increased 67% year-over-year
Fiscal 2020 Financial Highlights (unaudited)
- GAAP net loss increased to ($20.1) million from ($4.8) million last year; non-GAAP net income excluding stock-based compensation, restructuring, and legal and transaction related fees increased to $79.2 million from $41.8 million last year
- GAAP diluted loss per share increased to ($0.18) from ($0.05) last year; non-GAAP diluted earnings per share (EPS) excluding stock-based compensation, restructuring, and legal and transaction related fees increased to $0.67 from $0.37 last year
- Adjusted EBITDA increased 22% to a record $108.5 million; excluding the effect of tariffs, adjusted EBITDA increased 56% to $140.9 million
- Adjusted EBITDA margin increased 120 basis points to record 8.2%; excluding the effect of tariffs, adjusted EBITDA margin increased 350 basis points to 10.6%
- Gross margin increased 130 basis points to 43.1%; excluding the effect of tariffs, gross margin increased 370 basis points to a record of 45.6%
- Revenue increased 5% to $1.326 billion; excluding the impact of the 53rd week in fiscal 2020, revenue increased approximately 3%
- Direct-to-consumer revenue increased 84% and represented a record 21% of total revenue compared to 12% last year
- Cash flows from operating activities of $162.0 million compared to $120.6 million last year
- Free cash flow of $129.0 million compared to $97.4 million last year
Sonos CEO Patrick Spence commented, “We reached an inflection point in the fourth quarter that demonstrates the power and profitability of our model. As our customers recognize, Sonos products operate seamlessly together, with more products improving the experience. That’s why year in and year out, our existing customers add more products to their systems – every new household that we gain starts that cycle anew. Fiscal 2020 was the 15th year in a row we grew total households by at least 20%, while our existing customers once again showed strong repurchase habits, accounting for a record 41% of total product registrations. We deliver a consistent cadence of new, innovative products and services, and we have only started the process of realizing the lifetime value of our customers, both old and new.”
“In fiscal 2020, we delivered a record 8.2% adjusted EBITDA margin, or 10.6% excluding the effect of tariffs, and we project delivering 12% to 14% adjusted EBITDA margins next year, which is ahead of our prior targets,” continued Mr. Spence.
Mr. Spence concluded, “As we look ahead, we are focused on delivering innovative new products and services that customers love, strengthening our direct-to-consumer efforts, and supporting our incredible partnerships. We believe we are well positioned to deliver strong profit margins, cash flow, revenue growth and increased shareholder value over the long-term.”
Fiscal 2020 Company Highlights
- Launched three new products including Arc, our premium smart soundbar replacing Playbar; Five, our most powerful speaker and replacing Play:5; and Sub (Gen 3), featuring the same iconic design and bold bass as its predecessor
- Launched Sonos S2, a powerful new app and operating system
- Announced multifaceted innovative marketing campaign with Disney, celebrating the widely anticipated premiere of the second season of “The Mandalorian”
- Introduced Sonos Radio, a free, ad-supported radio service available in the Sonos app
- Total households increased 20% to 10.9 million in fiscal 2020 on top of 22% growth last year
- Existing households accounted for 41% of new product registrations in fiscal 2020 up from 37% last year
- Added record 1.8 million net new households in fiscal 2020
- Average number of registered products per household at 2.9 in fiscal 2020
- Listening hours increased 33% in fiscal 2020 compared to 29% growth last year
Fiscal 2021 Outlook
- Adjusted EBITDA in the range of $170 million to $205 million, representing growth in the range of 57% to 89%, or 21% to 46% excluding the effect of tariffs in fiscal 2020
- Adjusted EBITDA margin in the range of 12% to 14%, representing a 380 to 580 basis point improvement year-over-year, or 140 to 340 basis points excluding the effect of tariffs in fiscal 2020
- Gross margin in the range of 45.3% to 45.8%, representing a 220 to 270 basis point improvement year-over-year; excluding the effect of tariffs in fiscal 2020, gross margin roughly flat year-over-year. This includes minimal impact from ongoing tariffs and no impact from the potential tariff refund.
- Revenue in the range of $1.44 billion to $1.5 billion, representing growth in the range of 11% to 15% from fiscal 2020 on a comparable 52-week basis and 9% to 13% on as reported basis
- Direct-to-consumer revenue as a percentage of total revenue similar to fiscal 2020
Virtual Investor Event – Tuesday, March 9, 2021
Sonos will host a virtual investor event on Tuesday, March 9, 2021 highlighting its long-term strategic priorities and targets. Further details to come.
Supplemental Earnings Presentation
The Company has posted a supplemental earnings presentation accompanying its fourth quarter and fiscal 2020 results to the Earnings Reports section of its investor relations website at https://investors.sonos.com/reports-and-filings/default.aspx#section=earningsreports.
Conference Call, Webcast and Transcript
The Company will host a webcast of its conference call and Q&A related to its fourth quarter and fiscal 2020 results on November 18, 2020 at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time). Participants may access the live webcast in listen-only mode on the Sonos investor relations website at https://investors.sonos.com/news-and-events/default.aspx. The conference call may also be accessed by dialing (833) 921-1637 with conference ID 7717309. Participants outside the U.S. can access the call by dialing (236) 714-2128 using the same conference ID.
An archived webcast of the conference call and a transcript of the company’s prepared remarks and Q&A session will also be available at https://investors.sonos.com/reports-and-filings/default.aspx#section=earningsreports following the call.
|
Consolidated Statements of Operations and Comprehensive Income (Loss) |
||||||||||||||
| (unaudited, dollars in thousands, except share and per share amounts) | ||||||||||||||
| Three Months Ended | Twelve Months Ended | |||||||||||||
| October 3, 2020 | September 28, 2019 | October 3, 2020 | September 28, 2019 | |||||||||||
| Revenue |
$ |
339,837 |
|
$ |
294,160 |
|
$ |
1,326,328 |
|
$ |
1,260,823 |
|
||
| Cost of revenue |
|
178,301 |
|
|
169,889 |
|
|
754,372 |
|
|
733,480 |
|
||
| Gross profit |
|
161,536 |
|
|
124,271 |
|
|
571,956 |
|
|
527,343 |
|
||
| Operating expenses | ||||||||||||||
| Research and development |
|
54,783 |
|
|
49,644 |
|
|
214,672 |
|
|
171,174 |
|
||
| Sales and marketing |
|
58,338 |
|
|
70,894 |
|
|
263,539 |
|
|
247,599 |
|
||
| General and administrative |
|
32,986 |
|
|
28,565 |
|
|
120,978 |
|
|
102,871 |
|
||
| Total operating expenses |
|
146,107 |
|
|
149,103 |
|
|
599,189 |
|
|
521,644 |
|
||
| Operating income (loss) |
|
15,429 |
|
|
(24,832 |
) |
|
(27,233 |
) |
|
5,699 |
|
||
| Other income (expense), net | ||||||||||||||
| Interest income |
|
43 |
|
|
1,416 |
|
|
1,998 |
|
|
4,349 |
|
||
| Interest expense |
|
(300 |
) |
|
(584 |
) |
|
(1,487 |
) |
|
(2,499 |
) |
||
| Other income (expense), net |
|
3,273 |
|
|
(4,985 |
) |
|
6,639 |
|
|
(8,625 |
) |
||
| Total other income (expense), net |
|
3,016 |
|
|
(4,153 |
) |
|
7,150 |
|
|
(6,775 |
) |
||
| Income (loss) before provision for income taxes |
|
18,445 |
|
|
(28,985 |
) |
|
(20,083 |
) |
|
(1,076 |
) |
||
| Provision for income taxes |
|
34 |
|
|
615 |
|
|
32 |
|
|
3,690 |
|
||
| Net income (loss) |
|
18,411 |
|
|
(29,600 |
) |
|
(20,115 |
) |
|
(4,766 |
) |
||
| Net income (loss) attributable to common stockholders | ||||||||||||||
| Basic |
|
18,411 |
|
|
(29,600 |
) |
|
(20,115 |
) |
|
(4,766 |
) |
||
| Diluted |
|
18,411 |
|
|
(29,600 |
) |
|
(20,115 |
) |
|
(4,766 |
) |
||
| Net income (loss) per share attributable to common stockholders | ||||||||||||||
| Basic |
$ |
0.17 |
|
$ |
(0.28 |
) |
$ |
(0.18 |
) |
$ |
(0.05 |
) |
||
| Diluted |
$ |
0.15 |
|
$ |
(0.28 |
) |
$ |
(0.18 |
) |
$ |
(0.05 |
) |
||
| Weighted-average shares used in computing net income (loss) per share attributable to common stockholders | ||||||||||||||
| Basic |
|
111,148,110 |
|
|
107,130,076 |
|
|
109,807,154 |
|
|
103,783,006 |
|
||
| Diluted |
|
122,598,225 |
|
|
107,130,076 |
|
|
109,807,154 |
|
|
103,783,006 |
|
||
| Total comprehensive income (loss) | ||||||||||||||
| Net income (loss) |
|
18,411 |
|
|
(29,600 |
) |
|
(20,115 |
) |
|
(4,766 |
) |
||
| Change in foreign currency translation adjustment |
|
(1,095 |
) |
|
1,107 |
|
|
(1,826 |
) |
|
1,613 |
|
||
| Comprehensive income (loss) |
$ |
17,316 |
|
$ |
(28,493 |
) |
$ |
(21,941 |
) |
$ |
(3,153 |
) |
||
| Condensed Consolidated Balance Sheets | ||||||
| (unaudited, dollars in thousands, except par values) | ||||||
| As of | ||||||
| October 3, 2020 |
September 28, 2019 |
|||||
| Assets | ||||||
| Current assets: | ||||||
| Cash and cash equivalents |
$ |
407,100 |
|
$ |
338,641 |
|
| Restricted cash |
|
191 |
|
|
179 |
|
| Accounts receivable, net of allowances |
|
54,935 |
|
|
102,743 |
|
| Inventories |
|
180,830 |
|
|
219,784 |
|
| Prepaids and other current assets |
|
17,321 |
|
|
17,762 |
|
| Total current assets |
|
660,377 |
|
|
679,109 |
|
| Property and equipment, net |
|
60,784 |
|
|
78,139 |
|
| Operating lease right-of-use assets |
|
42,342 |
|
|
– |
|
| Goodwill |
|
15,545 |
|
|
1,005 |
|
| Intangible assets, net |
|
26,394 |
|
|
13 |
|
| Deferred tax assets |
|
1,800 |
|
|
1,154 |
|
| Other noncurrent assets |
|
8,809 |
|
|
2,185 |
|
| Total assets |
$ |
816,051 |
|
$ |
761,605 |
|
| Liabilities and stockholders’ equity | ||||||
| Current liabilities: | ||||||
| Accounts payable |
$ |
250,328 |
|
$ |
251,941 |
|
| Accrued expenses |
|
45,049 |
|
|
69,856 |
|
| Accrued compensation |
|
44,517 |
|
|
41,142 |
|
| Short-term debt |
|
6,667 |
|
|
8,333 |
|
| Deferred revenue, current |
|
15,304 |
|
|
13,654 |
|
| Other current liabilities |
|
31,150 |
|
|
17,548 |
|
| Total current liabilities |
|
393,015 |
|
|
402,474 |
|
| Operating lease liabilities, noncurrent |
|
50,360 |
|
|
– |
|
| Long-term debt |
|
18,251 |
|
|
24,840 |
|
| Deferred revenue, noncurrent |
|
47,085 |
|
|
42,795 |
|
| Deferred tax liabilities |
|
2,434 |
|
|
– |
|
| Other noncurrent liabilities |
|
7,067 |
|
|
10,568 |
|
| Total liabilities |
|
518,212 |
|
|
480,677 |
|
| Stockholders’ equity: | ||||||
| Common stock, $0.001 par value |
|
114 |
|
|
110 |
|
| Treasury stock |
|
(20,886 |
) |
|
(13,498 |
) |
| Additional paid-in capital |
|
548,993 |
|
|
502,757 |
|
| Accumulated deficit |
|
(228,492 |
) |
|
(208,377 |
) |
| Accumulated other comprehensive loss |
|
(1,890 |
) |
|
(64 |
) |
| Total stockholders’ equity: |
|
297,839 |
|
|
280,928 |
|
| Total liabilities and stockholders’ equity: |
$ |
816,051 |
|
$ |
761,605 |
|
| Condensed Consolidated Statements of Cash Flows | ||||||
| (unaudited, dollars in thousands) | ||||||
| Twelve Months Ended | ||||||
| October 3, 2020 |
September 28, 2019 |
|||||
| Cash flows from operating activities | ||||||
| Net loss |
$ |
(20,115 |
) |
$ |
(4,766 |
) |
| Adjustments to reconcile net loss to net cash provided by operating activities | ||||||
| Depreciation and amortization |
|
36,426 |
|
|
36,415 |
|
| Impairment and abandonment charges |
|
14,174 |
|
|
– |
|
| Stock-based compensation expense |
|
57,610 |
|
|
46,575 |
|
| Other |
|
5,710 |
|
|
2,713 |
|
| Deferred income taxes |
|
(567 |
) |
|
(268 |
) |
| Foreign currency transaction (gain) loss |
|
(4,143 |
) |
|
4,035 |
|
| Changes in operating assets and liabilities: |
|
|
|
|
||
| Accounts receivable, net |
|
49,593 |
|
|
(32,078 |
) |
| Inventories |
|
38,010 |
|
|
(31,796 |
) |
| Other assets |
|
(5,749 |
) |
|
(7,605 |
) |
| Accounts payable and accrued expenses |
|
(24,440 |
) |
|
85,878 |
|
| Accrued compensation |
|
1,088 |
|
|
8,231 |
|
| Deferred revenue |
|
4,754 |
|
|
6,165 |
|
| Other liabilities |
|
9,635 |
|
|
7,137 |
|
| Net cash provided by operating activities |
|
161,986 |
|
|
120,636 |
|
| Cash flows from investing activities | ||||||
| Purchases of property and equipment and intangible assets |
|
(33,035 |
) |
|
(23,222 |
) |
| Cash paid for acquisition, net of acquired cash |
|
(36,289 |
) |
|
– |
|
| Net cash used in investing activities |
|
(69,324 |
) |
|
(23,222 |
) |
| Cash flows from financing activities | ||||||
| Repayments of borrowings |
|
(8,333 |
) |
|
(6,667 |
) |
| Payments for repurchase of common stock under share repurchase program |
|
(50,015 |
) |
|
– |
|
| Payments for repurchase of common stock related to equity awards |
|
(11,029 |
) |
|
(2,426 |
) |
| Proceeds from exercise of common stock options |
|
42,286 |
|
|
31,574 |
|
| Payments of offering costs |
|
– |
|
|
(585 |
) |
| Net cash provided by (used in) financing activities |
|
(27,091 |
) |
|
21,896 |
|
| Effect of exchange rate changes on cash, cash equivalents and restricted cash |
|
2,900 |
|
|
(1,610 |
) |
| Net increase in cash, cash equivalents and restricted cash |
|
68,471 |
|
|
117,700 |
|
| Cash, cash equivalents and restricted cash | ||||||
| Beginning of period |
|
338,820 |
|
|
221,120 |
|
| End of period |
$ |
407,291 |
|
$ |
338,820 |
|
| Supplemental disclosure | ||||||
| Cash paid for interest |
$ |
1,647 |
|
$ |
2,517 |
|
| Cash paid for taxes, net of refunds |
$ |
783 |
|
$ |
3,570 |
|
| Cash paid for amounts included in the measurement of lease liabilities |
$ |
17,194 |
|
$ |
– |
|
| Supplemental disclosure of non-cash investing and financing activities | ||||||
| Purchases of property and equipment, accrued but not paid |
$ |
3,911 |
|
$ |
11,687 |
|
| Right-of-use assets obtained in exchange for lease liabilities |
$ |
77,416 |
|
$ |
– |
|
| Reconciliation of Net Income (Loss) to Adjusted EBITDA | |||||||||||||||
| (unaudited, dollars in thousands) | |||||||||||||||
| Three Months Ended | Twelve Months Ended | ||||||||||||||
| October 3, 2020 |
September 28, 2019 |
October 3, 2020 |
September 28, 2019 |
||||||||||||
| Net income (loss) |
$ |
18,411 |
|
$ |
(29,600 |
) |
$ |
(20,115 |
) |
$ |
(4,766 |
) |
|||
| Add (deduct): | |||||||||||||||
| Depreciation and amortization |
|
8,733 |
|
|
9,012 |
|
|
36,426 |
|
|
36,415 |
|
|||
| Stock-based compensation expense |
|
15,971 |
|
|
13,049 |
|
|
57,610 |
|
|
46,575 |
|
|||
| Interest income |
|
(43 |
) |
|
(1,416 |
) |
|
(1,998 |
) |
|
(4,349 |
) |
|||
| Interest expense |
|
300 |
|
|
584 |
|
|
1,487 |
|
|
2,499 |
|
|||
| Other (income) expense, net |
|
(3,273 |
) |
|
4,985 |
|
|
(6,639 |
) |
|
8,625 |
|
|||
| Provision for income taxes |
|
34 |
|
|
615 |
|
|
32 |
|
|
3,690 |
|
|||
| Restructuring and related charges |
|
125 |
|
|
– |
|
|
26,285 |
|
|
– |
|
|||
| Legal and transaction related costs (1) |
|
6,170 |
|
|
– |
|
|
15,455 |
|
|
– |
|
|||
| Adjusted EBITDA |
$ |
46,428 |
|
$ |
(2,771 |
) |
$ |
108,543 |
|
$ |
88,689 |
|
|||
| Revenue |
$ |
339,837 |
|
$ |
294,160 |
|
$ |
1,326,328 |
|
$ |
1,260,823 |
|
|||
| Adjusted EBITDA margin |
|
13.7 |
% |
|
(0.9 |
)% |
|
8.2 |
% |
|
7.0 |
% |
|||
| (1) Legal and transaction related costs consist of expenses related to our intellectual property (“IP”) litigation against Alphabet Inc. and Google LLC as well as legal and transaction costs associated with our recent acquisition activity, which we do not consider representative of our underlying operating performance. | |||||||||||||||
| Reconciliation of Cash Flows Provided by Operating Activities to Free Cash Flow | ||||||
| (unaudited, dollars in thousands) | ||||||
| Year Ended | ||||||
| October 3, 2020 |
September 28, 2019 |
|||||
| Cash flows provided by operating activities |
$ |
161,986 |
|
$ |
120,636 |
|
| Less: purchases of property and equipment and intangible assets |
|
(33,035 |
) |
|
(23,222 |
) |
| Free cash flow |
$ |
128,951 |
|
$ |
97,414 |
|
| Revenue by Product Category | ||||||||||
| (unaudited, dollars in thousands) | ||||||||||
| Three Months Ended | Twelve Months Ended | |||||||||
| October 3, 2020 |
September 28, 2019 |
October 3, 2020 |
September 28, 2019 |
|||||||
| Sonos speakers |
$ |
254,874 |
$ |
217,526 |
$ |
1,034,813 |
$ |
1,008,422 |
||
| Sonos system products |
|
67,901 |
|
49,686 |
|
218,788 |
|
187,172 |
||
| Partner products and other revenue |
|
17,062 |
|
26,948 |
|
72,727 |
|
65,229 |
||
| Total revenue |
$ |
339,837 |
$ |
294,160 |
$ |
1,326,328 |
$ |
1,260,823 |
||
| Revenue by Geographical Region | ||||||||||
| (unaudited, dollars in thousands) | ||||||||||
| Three Months Ended | Twelve Months Ended | |||||||||
| October 3, 2020 |
September 28, 2019 |
October 3, 2020 |
September 28, 2019 |
|||||||
| Americas |
$ |
199,549 |
$ |
157,540 |
$ |
755,874 |
$ |
678,224 |
||
| Europe, Middle East and Africa (“EMEA”) |
|
117,076 |
|
101,248 |
|
470,883 |
|
484,785 |
||
| Asia Pacific (“APAC”) |
|
23,212 |
|
35,372 |
|
99,571 |
|
97,814 |
||
| Total revenue |
$ |
339,837 |
$ |
294,160 |
$ |
1,326,328 |
$ |
1,260,823 |
||
| Stock-based Compensation | ||||||||||
| (unaudited, in thousands) | ||||||||||
| Three Months Ended | Twelve Months Ended | |||||||||
| October 3, 2020 | September 28, 2019 | October 3, 2020 | September 28, 2019 | |||||||
| Cost of revenue |
|
239 |
|
284 |
|
1,106 |
|
985 |
||
| Research and development |
|
6,742 |
|
4,851 |
|
23,439 |
|
17,643 |
||
| Sales and marketing |
|
3,701 |
|
3,549 |
|
14,359 |
|
12,965 |
||
| General and administrative |
|
5,289 |
|
4,365 |
|
18,706 |
|
14,982 |
||
| Total stock-based compensation expense |
$ |
15,971 |
$ |
13,049 |
$ |
57,610 |
$ |
46,575 |
||
| Restructuring and Related Costs(1) | |||||
| (unaudited, in thousands) | |||||
| Three Months Ended | Twelve Months Ended | ||||
| October 3, 2020 |
October 3, 2020 |
||||
| Research and development |
$ |
125 |
$ |
5,074 |
|
| Sales and marketing |
|
– |
|
19,788 |
|
| General and administrative |
|
– |
|
1,423 |
|
| Total restructuring and related costs |
$ |
125 |
$ |
26,285 |
|
| (1) On June 23, 2020, the Company initiated a restructuring plan as part of its efforts to reduce operating expenses and preserve liquidity due to the uncertainty and challenges stemming from the COVID-19 pandemic. As part of the 2020 restructuring plan, the Company eliminated approximately 12% of its global headcount and closed its New York retail store and six satellite offices. The Company believes these initiatives will better align resources to provide further operating flexibility and more efficiently position the business for its long-term strategy. The Company expects activities under the 2020 restructuring plan to be substantially complete in the first quarter of fiscal 2021. | |||||
Use of Non-GAAP Measures
We have provided in this press release financial information that has not been prepared in accordance with generally accepted accounting principles (“U.S. GAAP”), including adjusted EBITDA, adjusted EBITDA margin, free cash flow, gross margin excluding the effect of tariffs, adjusted EBITDA excluding the effect of tariffs, adjusted EBITDA margin excluding the effect of tariffs, revenue excluding the 14th week, revenue excluding the 53rd week, net income (loss) excluding stock-based compensation, restructuring, and legal and transaction related fees, and diluted earnings per share (EPS) excluding stock-based compensation, restructuring, and legal and transaction related fees. These non-GAAP financial measures are not based on any standardized methodology prescribed by U.S. GAAP and are not necessarily comparable to similarly titled measures presented by other companies. We use these non-GAAP financial measures to evaluate our operating performance and trends and make planning decisions. We believe that these non-GAAP financial measures help identify underlying trends in our business that could otherwise be masked by the effect of the expenses and other items that we exclude in these non-GAAP financial measures. Accordingly, we believe that these non-GAAP financial measures provide useful information to investors and others in understanding and evaluating our operating results, enhancing the overall understanding of our past performance and future prospects, and allowing for greater transparency with respect to a key financial metric used by our management in its financial and operational decision-making. Non-GAAP financial measures should not be considered in isolation of, or as an alternative to, measures prepared in accordance with U.S. GAAP. Investors are encouraged to review the reconciliation of these financial measures to their nearest U.S. GAAP financial equivalents provided in the financial statement tables above. We define adjusted EBITDA as net income (loss) adjusted to exclude the impact of depreciation, stock-based compensation expense, interest income, interest expense, other income (expense), income taxes and other items that we do not consider representative of our underlying operating performance. We define adjusted EBITDA margin as adjusted EBITDA divided by revenue. We calculate gross margin excluding the effect of tariffs as gross profit dollars removing the effect of tariffs imposed on goods imported to the U.S. from China divided by revenue. We define free cash flow as defined as net cash from operations less purchases of property and equipment and intangible assets. We calculate adjusted EBITDA excluding the effect of tariffs as net income (loss) excluding the effect of tariffs imposed on goods manufactured in China and adjusted to exclude the impact of depreciation, stock-based compensation expense, interest income, interest expense, other income (expense), income taxes and other items that we do not consider representative of our underlying operating performance. We calculate non-GAAP net income excluding stock-based compensation, restructuring and legal and transaction related fees as net income less stock-based compensation, restructuring fees and legal and transaction related fees. We calculate non-GAAP diluted earnings per share (EPS) excluding stock-based compensation, restructuring, and legal and transaction related fees as net income less stock-based compensation, restructuring costs and legal and transaction related fees divided by our number of shares at fiscal year end. We do not provide a reconciliation of forward-looking non-GAAP financial measures to their comparable GAAP financial measures because we cannot do so without unreasonable effort due to unavailability of information needed to calculate reconciling items and due to the variability, complexity and limited visibility of the adjusting items that would be excluded from the non-GAAP financial measures in future periods. When planning, forecasting and analyzing future periods, we do so primarily on a non-GAAP basis without preparing a GAAP analysis as that would require estimates for items such as stock-based compensation, which is inherently difficult to predict with reasonable accuracy. Stock-based compensation expense is difficult to estimate because it depends on our future hiring and retention needs, as well as the future fair market value of our common stock, all of which are difficult to predict and subject to constant change. In addition, for purposes of setting annual guidance, it would be difficult to quantify stock-based compensation expense for the year with reasonable accuracy in the current quarter. As a result, we do not believe that a GAAP reconciliation would provide meaningful supplemental information about our outlook.
Forward Looking Statements
This press release contains forward-looking statements that involve risks and uncertainties. These forward-looking statements include statements regarding our outlook for the fiscal year ended October 2, 2021, our long-term focus, financial, growth and business strategies and opportunities, growth metrics and targets, new products, software, services and partnerships, profitability and gross margins, our restructuring efforts, our tariff expense and other factors affecting variability in our financial results. These forward-looking statements are only predictions and may differ materially from actual results due to a variety of factors, including, but not limited to the duration and impact of the COVID-19 pandemic and related mitigation efforts on our industry; changes in general economic or market conditions that could affect consumer income and overall consumer spending; our ability to successfully introduce new products and services and maintain the success of our existing products; the success of our efforts to expand our direct-to-consumer channel; the success of our financial, growth and business
Contacts
Investor Contact
Cammeron McLaughlin
IR@sonos.com
Press Contact
Tom Lodge
PR@sonos.com
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